SYDNEY/WELLINGTON (Reuters) - The Australian and New Zealand dollars dithered on Tuesday as a deal between Canada and the United States briefly lessened the risk of a wider trade war, while Australia's central bank kept interest rates at record lows for a 26th straight month.
The Aussie dollar <AUD=D3> was a fraction firmer at $0.7230, but fenced in by resistance around $0.7315 and support at $0.7200.
The Reserve Bank of Australia (RBA) held rates at 1.5 percent after its October policy meeting, a widely expected decision given inflation and wage growth continue to disappoint.
Neither is it in any rush to move, acknowledging that lending conditions for home loans had tightened and progress on meeting its economic targets would likely be gradual.
"Credit conditions are tighter than they have been for some time, although mortgage rates remain low," said RBA Governor Philip Lowe in his post-meeting statement.
That is a major reason markets are not fully priced for a rate hike for another year or more. The most distant futures contract is for March 2020 <0#YIB:> and that has only 20 basis points of tightening baked in.
Risk sentiment had got a boost after President Donald Trump agreed a new trade deal with Canada and Mexico that was much like the one it replaces.
"The NAFTA deal significantly reduces the risks that the U.S. will "go global" with a war on trade," said JPMorgan economist David Hensley.
"However, it would be a mistake to ignore the September PMIs (manufacturing surveys)," he cautioned. "Our global manufacturing output PMI tumbled in September to the lowest level since September 2016."
Two manufacturing surveys from China on Sunday pointed to weakening in its vast manufacturing sector.
China is Australia's single biggest export market and any hint of a slowdown there is taken as a negative for the Aussie.
The New Zealand dollar <NZD=D3> was a shade softer at $0.6608, but found solid bids around $0.6595.
The kiwi took a mild knock after a survey showed business confidence sank to a nine-year low in the third quarter, opening the door to a possible rate cut if economic growth slows sharply.
"Today's survey is exactly what keeps the RBNZ (Reserve Bank of New Zealand) awake at night, and justifies the central bank's dovish tilt," said Jarrod Kerr, chief economist at Kiwibank.
New Zealand government bonds <0#NZTSY=> barely budged.
Australian government bond futures eased in line with global risk, with the three-year bond contract <YTTc1> off 1 tick at 97.900. The 10-year contract <YTCc1> dipped 2 ticks to 97.2850.
(Editing by Shri Navaratnam)
